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Ya Global (August 8, 2018)
Ya Global (August 8, 2018)
Ya Global (August 8, 2018)
H_ejd, further, under I.R.C. sec. 6226(f) the Tax Court has
jurisdiction to determine partnership items including partnership
liabilities.
OPINION
BUCH, Judge: This case comes before the Court on a motion to dismiss for
lack ofjurisdiction filed by the tax matters partner (TMP) for YA Global
Investments, LP (YA Global). In its motion, the TMP argues that withholding tax
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under section 1446¹ is not a partnership item and as a result the adjustments in the
withholding tax liability under section 1446 must be dismissed for lack of subject
matter jurisdiction. The Commissioner argues that withholding tax liability under
section 1446 is a partnership item and that YA Global is a party to the proceeding.
We find that withholding tax liability under section 1446 is a partnership item and
Background
Global reports that it is an investor and is not engaged in an active U.S. trade or
business. It is based in the Cayman Islands, and its general partner and TMP,
Yorkville, is based in New Jersey.2 YA Global has both foreign and domestic
partners and was subject to the unified partnership audit and litigation procedures
of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. No. 97-
¹All section references are to the Internal Revenue Code (Code) in effect at
all relevant times.
2In 2006 its general partner and TMP was Yorkville Advisors, LLC. In
2007 through 2010 its general partner and TMP was Yorkville Advisors GP, LLC.
For purposes of this Opinion, we refer to these entities singularly as Yorkville.
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YA Global filed a Form 1065, U.S. Return of Partnership Income, for each
of the years in issue, 2006 through 2010. For each year YA Global reported its
In March of2015 the Commissioner issued a separate FPAA for each year,
Global was a dealer in securities under section 475. In the FPAAs the
and that all of its income was ordinary income that was effectively connected with
effectively connected taxable income allocable to its foreign partners under I.R.C.
§ 1446." For 2006 through 2009 the Commissioner determined that YA Global
was liable for taxes that were required to be withheld under section 1446 and
related additions to tax and penalties. The Commissioner issued an FPAA with no
In addition to the FPAAs for 2006 through 2010, the Commissioner issued a
notice of deficiency for 2006 through 2009, determining that YA Global was
required to withhold taxes under section 1446. On the basis of that determination,
the Commissioner further determined that YA Global was liable for the tax under
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section 1446, failure to file and failure to pay additions to tax under section
6651(a), and failure to make estimated tax payments additions to tax under
for 2006 through 2010, and YA Global filed a petition for redetermination of the
deficiencies. YA Global and its TMP each filed motions to dismiss for lack of
jurisdiction.
proceeding, Yorkville argues that withholding tax liability under section 1446 is
not a partnership item. From this the TMP further argues that the liabilities under
section 1446 and all of the related additions to tax and penalties are not properly
before the Court in this partnership-level proceeding. The TMP also argues that,
because it is the partners who are the parties to a TEFRA proceeding rather than
proceeding.
income that was effectively connected with a U.S. trade or business that could
give rise to liability under section 1446. YA Global further argues that any notice
of deficiency determining liability under section 1446 must await the outcome of
item. His principal argument is that liability under section 1446 fits within the
partnership level than at the partner level, further suggesting that it is a partnership
item.
proceedings with their respective motions to dismiss are before the Court. The
question in this proceeding is whether the liability under section 1446 and the
related penalties are properly before the Court in this partnership-level proceeding.
Discussion
Ordinarily, it is the partners and not the partnership that are subject to tax.
Sec. 701. Certain tax issues can be resolved at the partnership level and remain
the same regardless of particular partners' circumstances, while other issues can be
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addressed only at the partner level. To ensure that all partners receive the same
11, 17 (2007), aff'd in part, remanded in part sub nom. Desmet v. Commissioner,
While partnerships are not generally subject to income tax, they are required
to file annual information returns with the Commissioner. Sec. 6031. When the
FPAA which makes adjustments to those items. Sec. 6223(a), (d)(2). If certain
partners disagree with those adjustments, they can petition the Tax Court for
readjustment of partnership items for the taxable year identified in the FPAA. Sec.
The Tax Court is a court of limited jurisdiction. Sec. 7442. The Tax Court
partnership for the partnership taxable year to which the notice of final partnership
administrative adjustment relates, the proper allocation of such items among the
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partners, and the applicability of any penalty, addition to tax, or additional amount
be taken into account for the partnership's taxable year under any provision of
subtitle A to the extent regulations prescribed by the Secretary provide that, for
partnership level than at the partner level." The question before the Court is
Under section 1446 a partnership must withhold tax on any foreign partner's
sec. 1445(e). Section 1461 provides that "[e]very person required to deduct and
withhold any tax under * * * [chapter 3] is hereby made liable for such tax".
Section 1446 is in chapter 3 of the Code. Together these two sections make a
partnership liable for the tax required to be withheld on foreign partners' shares of
Section 1446 is also in subtitle A. Because the tax imposed by section 1446
is found in subtitle A, it is among the items that may be partnership items if the
such regulation. Thus, at first blush, it might appear that the tax imposed by
section 1446 is not treated as a partnership item. But our inquiry does not end
there.
The tax imposed by section 1446 is brought within the scope of partnership
the partnership liable for any tax required to be withheld under section 1446, any
tax required to be withheld under section 1446 is a partnership liability. And the
section 1446 and the related penalties of an entity that is not a party to the
proceeding. We conclude that we need not address this issue. We are explicitly
Conclusion
denied.